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What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at AptarGroup (NYSE:ATR) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
Understanding Return On Capital Employed (ROCE)
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for AptarGroup:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.15 = US$511m ÷ (US$4.4b - US$1.1b) (Based on the trailing twelve months to December 2024).
So, AptarGroup has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Packaging industry average of 10% it's much better.
Check out our latest analysis for AptarGroup
Above you can see how the current ROCE for AptarGroup compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for AptarGroup .
What Does the ROCE Trend For AptarGroup Tell Us?
There hasn't been much to report for AptarGroup's returns and its level of capital employed because both metrics have been steady for the past five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So unless we see a substantial change at AptarGroup in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger. This probably explains why AptarGroup is paying out 31% of its income to shareholders in the form of dividends. Given the business isn't reinvesting in itself, it makes sense to distribute a portion of earnings among shareholders.
The Bottom Line On AptarGroup's ROCE
In a nutshell, AptarGroup has been trudging along with the same returns from the same amount of capital over the last five years. Although the market must be expecting these trends to improve because the stock has gained 66% over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.